Austin Fab Resumption Lifts Uncertainties

The author is an analyst of Shinhan Investment Corp. He can be reached at doyeon@shinhan.com. -- Ed.

 

2021 OP forecast at KRW48.9tr (+35.8 YoY)

Samsung Electronics is expected to record operating profit of KRW48.9tr (+35.8% YoY) on sales of KRW271.5tr (+14.6% YoY) for 2021, exceeding the market consensus of KRW47.5tr. Semiconductors should drive quarterly earnings improvement from 2Q21 with the spike in memory chip prices and resumption of non-memory chip production at the Austin fab.

By division, we forecast full-year operating profit of KRW28.0tr (+49.0% YoY) from semiconductors, KRW13.6tr (+18.2% YoY) from IT & mobile
communications (IM), KRW3.6tr (+63.3% YoY) from displays, and KRW3.7tr
(+3.2% YoY) from consumer electronics (CE).

Weak share performance YTD; Austin fab resumption lifts uncertainties

Samsung Electronics shares have remained sluggish YTD due to concerns over: 1) slowing smartphone shipments caused by the temporary suspension of non-memory chip production at the Austin fab; and 2) increased competition from Intel’s entry into the foundry market. We believe the Austin fab is back to normal operation. Intel should find it much tougher to attract foundry clients.

Roughly KRW60tr has been wiped off Samsung Electronics’ market cap YTD amid weakening expectations for non-memory semiconductors. The loss is equivalent to 3.5 times the company’s non-memory sales in 2020. We need to focus on the removal of uncertainties, rather than looking deeper for reasons behind the share price correction. The severe supply shortage of non-memory chips is a major global issue. This may be a good opportunity for the chipmaker to enhance its market position in non-memory.

Share price lull to end soon; buying opportunity during fluctuations

Memory market conditions should improve rapidly with the spike in DRAM prices and a market turnaround for NAND. During economic recovery periods, memory makers typically see limited increase in overall costs with fixed costs accounting for most of the total. Memory chip sales increase sharply on the rise in ASP levels. As a result, the memory sector normally reports faster growth in earnings than the broader market during periods of economic recovery.

Key investment points for Samsung Electronics are: 1) forecasts for steep
earnings improvement from 1Q21; 2) expectations for record-high earnings in 2022; and 3) potential re-rating when memory market volatility is reduced. We recommend accumulating shares in Samsung Electronics during market fluctuations.

Copyright © BusinessKorea. Prohibited from unauthorized reproduction and redistribution